Company Notes Digest 10.6.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

The economy has strong momentum and there are increasing signs of production bottlenecks in various markets. Given the fundamentals it’s increasingly surprising that inflation expectations aren’t rising and that the 10 year treasury yield is still only 2.35%. In every decade before 1980 we would be on high alert for inflation by now and the Fed would be hitting the brakes. However, in the modern economy inflation appears to be a thing of the past. Either that, or the conditions are right for a big surprise.

The Macro Outlook:

The economy has momentum

“I think we are absolutely seeing that continued momentum, particularly in the upper end of the economy” —Vail CEO Rob Katz (Ski Resorts)

Bottlenecks are appearing

There is more demand for homes than supply

“right now, with the shortage of inventory and all the positive things I mentioned first time buyers coming out, wage growth, employment growth, all these good things are going on and there is more demand out there right now than there is supply.” —KB Home CEO Jeff Mezger (Homebuilder)

The memory industry is undersupplied

“Moving on to the demand and supply fundamentals, we expect the industry to remain moderately undersupplied for the rest of 2017 for both DRAM and NAND…The DRAM industry supply demand balance is expected to stay healthy throughout calendar 2018, driven in part by ongoing strength in data center and cloud computing trends” —Micron CEO Sanjay Mehrotra (Semiconductors)

Auto inventory is balancing

“we feel good about our inventory position…we would certainly be looking into leaning into giving some more production at this point over the next six-month period and now less just based on our current day supply.” —Ford VP Mark LaNeve (Autos)

Bottlenecks = pricing power

Labor shortages are leading to wage growth

“The often discussed labor shortage in many sectors of the economy is translating into wage growth. And while much of the data collected by the government doesn’t seem to reflect significant wage growth, the customers visiting our Welcome Home Centers are reflecting an optimistic sentiment and an ability to afford today’s more expensive homes.” —Lennar CEO Stuart Miller (Homebuilder)

Used vehicle pricing is stabilizing

“The used vehicle pricing has been very stable over the last I guess call it 8 to 10 weeks now Colin and in fact ticking up slightly depending on the segment very, very stable.” —Ford VP Mark LaNeve (Autos)

“Market conditions have been challenging with the return of inflation, but we’ve been able to protect our customers from more of this pressure than others by working closely with our supplier partners.” —Tesco CFO Alan Stewart (Retail)

Consumer:

Consumer brand companies are speaking like they’re tech companies

“as we target doubling our direct connection to consumers, we are ramping up investment in digital capabilities ranging from data science and analytics to machine learning to augmented reality to image recognition and personalization. We will continue to use our unrivalled resources to ensure that NIKE is built to win now and for the long-term.” —Nike CFO Andy Campion (Apparel)

“I’ll also say that we have taken several moves on vanilla as the cost of vanilla beans has moved from single digits per pound to well over $200 a pound and that’s been well understood in the industry and so their price increases have been accepted.” —McCormick CEO Lawrence Kurzius (Spices)